What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-09-12 compared with 2022-10-11 · 225 added, 210 removed, 281 unchanged (61% of the section changed)

10 unchanged sentences

We operate our business through three reportable segments:

• Storage and Terminal Solutions :

primarily consists of engineering, procurement, fabrication, and construction services related to cryogenic and other specialty tanks and terminals for LNG, NGLs, hydrogen, ammonia, propane, butane, liquid nitrogen/liquid oxygen, and liquid petroleum.

Also includes work related to traditional aboveground crude oil and refined product storage tanks and terminals.

This segment also includes terminal balance of plant work, truck and rail loading/offloading facilities, and marine structures as well as storage tank and terminal maintenance and repair.

Finally, we manufacture and sell precision engineered specialty tank products, including geodesic domes, aluminum internal floating roofs, floating suction and skimmer systems, roof drain systems and floating roof seals.

• Utility and Power Infrastructure :

consists of power delivery services provided to investor-owned utilities, including construction of new substations, upgrades of existing substations, transmission and distribution line installations, upgrades and maintenance, as well as emergency and storm restoration services.

We also provide engineering, fabrication, and construction services for LNG utility peak shaving facilities, and construction and maintenance services to a variety of power generation facilities, including natural gas fired facilities, in simple or combined cycle configuration.

primarily consists of engineering, procurement, fabrication, and construction services to support growing demand for LNG utility peak shaving facilities.

We also perform traditional electrical work for public and private utilities, including construction of new substations, upgrades of existing substations, transmission and distribution line installations, and upgrades and maintenance including live wire work.

Work may also include emergency and storm restoration services.

We also provide construction services to a variety of power generation facilities, including natural gas fired facilities in simple or combined cycle configurations.

• Process and Industrial Facilities :

primarily serves customers in the downstream and midstream petroleum industries who are engaged in refining crude oil and processing, fractionating, and marketing of natural gas and natural gas liquids.

We also serve customers in various other industries such as petrochemical, sulfur, mining and minerals companies engaged primarily in the extraction of non-ferrous metals, aerospace and defense, cement, agriculture, and other industrial customers.

Our services include plant maintenance, turnarounds, industrial cleaning services, engineering, fabrication, and capital construction.

• Storage and Terminal Solutions :

consists of work related to aboveground storage tanks and terminals.

We also include work related to cryogenic and other specialty storage tanks and terminals, including LNG, liquid nitrogen/liquid oxygen, liquid petroleum, hydrogen and other specialty vessels such as spheres in this segment, as well work related to marine structures and truck and rail loading/offloading facilities.

Our services include engineering, fabrication, construction, and maintenance and repair, which includes planned and emergency services for both tanks and full terminals.

Finally, we offer tank products, including geodesic domes, aluminum internal floating roofs, floating suction and skimmer systems, roof drain systems and floating roof seals.

primarily consists of plant maintenance, repair, and turnarounds in the downstream and midstream markets for energy clients including refining and processing of crude oil, fractionating, and marketing of natural gas and natural gas liquids.

Also includes engineering, procurement, fabrication, and construction for refinery upgrades and retrofits for renewable fuels.

We also construct thermal vacuum test chambers for aerospace and defense industries and other infrastructure for industries including petrochemical, sulfur, mining and minerals primarily in the extraction of non-ferrous metals, cement, agriculture, wastewater treatment facilities and other industrial customers.

The majority of the work for all segments is performed in the United States, with 9.4% of revenue generated internationally during fiscal 2023, 9.5% in fiscal 2022 and 10.2% in fiscal 2021.

The percentage of revenue generated internationally decreased in fiscal 2022 compared to fiscal 2021 primarily due to higher levels of revenue generated domestically.

The percentage of revenue generated internationally decreased in fiscal 2023 and fiscal 2022 compared to fiscal 2021 primarily due to higher domestic revenue growth.

Significant period to period changes in revenue, gross profits and operating results between fiscal 2023 and fiscal 2022 are discussed below on a consolidated basis for each segment.

A discussion of results of operations changes between fiscal 2022 and fiscal 2021 is included in Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended June 30, 2021, which was filed with the SEC on September 13, 2021.

Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended June 30, 2022, which was filed with the SEC on October 11, 2022.

Matrix Service Company

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(In thousands)

Utility and Power Infrastructure Process and Industrial Facilities Storage and Terminal Solutions Corporate Total

Storage and Terminal Solutions Utility and Power Infrastructure Process and Industrial Facilities Corporate Total

Fiscal Year 2023

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Goodwill impairment and restructuring costs 969 37 13,288 1,164 15,458

Operating loss (23,103) (10,103) (24,352) (30,296) (87,854)

Operating loss % (10.5) % (4.0) % (10.5) % — % (12.4) %

Operating profit (loss) (10,553) 3,617 (17,441) (28,510) (52,887)

Operating profit (loss) % (4.1) % 2.1 % (4.7) % — % (6.7) %

Fiscal Year 2022

Consolidated revenue $ 232,839 $ 220,093 $ 254,848 $ — $ 707,780

Gross profit 1,506 17,642 13,617 — 32,765

Gross profit % 0.7 % 8.8 % 5.2 % — % 4.9 %

Gross profit (loss) 262 (8,586) 9,270 (2,152) (1,206)

Gross profit (loss) % 0.1 % (3.9) % 3.6 % — % (0.2) %

Selling, general and administrative expenses 17,284 11,771 12,506 26,129 67,690

7 unchanged sentences

Goodwill impairment and restructuring costs (6,361) (2,709) 6,421 (851) (3,500)

Operating loss (13,415) (9,182) (17,934) (3,576) (44,107)

Operating profit (loss) 13,799 26,720 (7,338) 1,786 34,967

Operational Update

Bidding activity, project award volumes, and revenue volumes all improved in fiscal 2022 as the economy recovered from the pandemic.

However, delays in project starts on certain projects in our backlog as well as delays in awards of larger projects have negatively impacted our operating results.

Therefore, we have not been able to generate enough revenue to fully recover construction overhead and SG&A costs despite significant reductions in our cost structure.

In addition, projects bid during a competitive environment and increased forecasted costs to complete certain projects have further pressured profitability during the fiscal year (see the discussion of our fiscal 2022 results, and Part II, Item 8-Financial Statements and Supplementary Data, Note 2 - Revenue - Revisions in Estimates, for more information).

Based on improving market conditions and strong bidding activity, we are expecting project awards to increase into fiscal 2023, which we expect to lead to higher revenue volume, increased cost leverage, better margins, and improved earnings.

In fiscal 2022, we commenced the second phase of our ongoing business improvement plan to focus on centralization of support functions, including business development, accounting, human resources, procurement and project services into shared service centers.

Since the beginning of fiscal 2020, we estimate that we have reduced our cost structure by approximately $83 million, or approximately 30%, with approximately one-third of those reductions related to SG&A and the rest related to construction overhead, which is included in cost of revenue in the Consolidated Statements of Income.

Financial Statements and Supplementary Data, Note 14 - Restructuring Costs, for more information about our business improvement plan.

During fiscal 2023, strong bidding activity resulted in project awards of $1.3 billion and we ended the fiscal year with $1.1 billion of backlog, the highest level since the end of fiscal 2019.

Based on this building momentum, the process of returning revenue volume to pre-pandemic levels is well underway.

Accordingly, we are expecting revenue growth to be stronger in fiscal 2024 than it was in fiscal 2023.

However, some of the new awards are for significant capital projects that will not commence until the latter half of fiscal 2024 and will be recognized as revenue over a multi-year period.

Many of the projects booked during fiscal 2023 are large capital projects with gross margins at our pre-pandemic historical gross margin range.

In addition, growing revenue volume combined with cost reductions implemented in recent years should allow us to better leverage our cost structure, which will further enhance gross margins in fiscal 2024 and beyond.

We define backlog as the total dollar amount of revenue that we expect to recognize as a result of performing work that has been awarded to us through a signed contract, limited notice to proceed ("LNTP") or other type of assurance that we consider firm.

The following arrangements are considered firm:

• fixed-price awards;

• minimum customer commitments on cost plus arrangements;

• certain time and material arrangements in which the estimated value is firm or can be estimated with a reasonable amount of certainty in both timing and amounts.

For long-term maintenance contracts with no minimum commitments and other established customer agreements, we include only the amounts that we expect to recognize as revenue over the next 12 months.

For arrangements in which we have received a LNTP, we include the entire scope of work in our backlog if we conclude that the likelihood of the full project proceeding as high.

For all other arrangements, we calculate backlog as the estimated contract amount less revenue recognized as of the reporting date.

The following table provides a summary of changes in our backlog in fiscal 2023:

Storage and Terminal

Solutions Utility and Power Infrastructure Process and Industrial Facilities Total

(In thousands)

Backlog as of June 30, 2022 $ 195,114 $ 102,059 $ 292,287 $ 589,460

Project awards 354,510 526,963 444,148 1,325,621

Other adjustment (1)

(23,272) — (6,691) (29,963)

Revenue recognized (255,693) (169,504) (369,823) (795,020)

Backlog as of June 30, 2023 $ 270,659 $ 459,518 $ 359,921 $ 1,090,098

Book-to-bill ratio (2)

1.4 3.1 1.2 1.7

(1) Backlog was reduced by $30.0 million to account for a reduction of work available to us in an existing facility upgrade and service program.

(2) Calculated by dividing project awards by revenue recognized.

In the Storage and Terminal Solutions segment, backlog increased by 38.7% as we booked $354.5 million of project awards during fiscal 2023.

This segment includes significant opportunities for storage infrastructure projects related to natural gas, LNG, ammonia, hydrogen, NGLs and other forms of renewable energy.

We believe LNG and hydrogen projects in particular will be key growth drivers for this segment.

We were awarded a large-scale specialty vessel project in the second quarter following a similar award in the first quarter.

Bidding activity on LNG projects has been strong and we expect that to continue.

In the Utility and Power Infrastructure segment, backlog increased by 350.2% as we booked $527.0 million of project awards in fiscal 2023.

Project awards are primarily comprised of a project for the engineering, procurement, and construction of LNG peak shaving facilities and power delivery work.

We received a significant LNG peak shaving project award during the fourth quarter of fiscal 2023.

Our opportunity pipeline for LNG peak shaving projects continues to be promising, however those awards, while significant, can be less frequent.

Project opportunities and bidding activity are strong for both the power delivery portion of the business and LNG peak shaving.

In the Process and Industrial Facilities segment, backlog increased by 23.1% as we booked $444.1 million of project awards in fiscal 2023.

Included in project awards are a significant capital project awarded in the third quarter to upgrade a natural gas compressor station and contract growth on a capital project at a biodiesel facility.

Client spending related to refinery maintenance and turnaround operations has continued to be strong, which also contributed significantly to project awards during the year.

We continue to see demand for thermal vacuum chambers in the coming quarters, as well as increasing opportunities in mining and minerals, chemicals, and renewables.

In addition, we are continuing to pursue opportunities for midstream gas work, including some larger scale projects.

Project awards in all segments are cyclical and are typically the result of a sales process that can take several months or years to complete.

It is common for awards to shift from one period to another as the timing of awards is dependent upon a number of factors including changes in market conditions, permitting, off take agreements, project financing and other factors.

Backlog volatility may increase for some segments from time to time when individual project awards are less frequent, but more significant.

Awards for significant capital projects may be recognized as revenue over a multi-year period as the projects may take a few years to complete.

We expect to recognize approximately 54% of our total backlog reported as of June 30, 2023 as revenue within fiscal 2024.

Fiscal 2023 Versus Fiscal 2022

Consolidated revenue was $795.0 million for fiscal 2023 compared to $707.8 million in fiscal 2022.

On a segment basis, revenue increased in the Process and Industrial Facilities and Storage and Terminal Solutions segments by $115.0 million and $22.8 million, respectively.

These increases were partially offset by a decrease in revenue of $50.6 million in the Utility and Power Infrastructure segment.

Consolidated gross profit was $30.8 million in fiscal 2023 compared to a gross loss of $1.2 million in fiscal 2022.

Gross margin was 3.9% in fiscal 2023 compared to a negative gross margin of (0.2%) in fiscal 2022.

Gross margins in fiscal 2023 were negatively impacted by the under recovery of construction overhead costs, unfavorable changes in the estimated recovery of change orders and increased forecasted costs to complete certain midstream gas processing projects, continued work on previously-booked projects with reduced gross margins awarded in a highly competitive time period.

Gross margins in fiscal 2022 were negatively impacted by low revenue volume, which led to the under recovery of construction overhead costs.

In addition, the competitive bidding environment and increased forecasts in costs to complete projects negatively impacted gross margins.

Consolidated Selling, General and Administrative ("SG&A") expenses were $68.2 million in fiscal 2023 compared to $67.7 million in fiscal 2022.

In the second quarter of fiscal 2023, we recorded $12.3 million of goodwill impairment.

In the third quarter of fiscal 2022, we recorded $18.3 million of goodwill impairment.

Item 8, Financial Statements, Note 4 - Goodwill and Other Intangible Assets - Goodwill, for more information about the impairment.

As a result of actions taken to reduce our cost structure, we recorded $3.1 million of restructuring costs in fiscal 2023 and $0.6 million of restructuring costs in fiscal 2022.

Item 8, Financial Statements and Supplementary Data, Note 14 - Restructuring Costs, for more information.

Interest expense was $2.0 million in fiscal 2023 and $3.0 million in fiscal 2022.

Interest expense consists primarily of interest on debt outstanding, unused capacity fees, amortization of deferred debt issuance costs, letter of credit fees and other interest.

Interest expense in fiscal 2022 included $1.5 million of accelerated amortization of deferred debt amendment fees in the first quarter.

Other income included a $2.9 million gain on the sale of our industrial cleaning business in the fourth quarter of fiscal 2023.

Item 8, Financial Statements, Note 3 - Property, Plant and Equipment - Industrial Cleaning Disposal, for more information.

In fiscal 2022, other income included a $32.4 million gain on the sale-leaseback of our regional office and fabrication and warehouse facility located in Orange, California.

Item 8, Financial Statements, Note 3 - Property, Plant and Equipment - Sale-leaseback Transaction, for more information.

Our effective tax rate for fiscal 2023 was 0.8% compared to (9.6)% in fiscal 2022.

The effective tax rates for both periods were impacted by valuation allowances of $12.6 million and $17.9 million, respectively, placed on deferred tax assets.

We placed a valuation allowance on all of our deferred tax assets in the second quarter of fiscal 2022 due to the existence of a cumulative loss over a three-year period.

We will continue to place valuation allowances on newly generated deferred tax assets and will realize the benefit associated with the deferred tax assets for which the valuation allowance has been provided to the extent we generate taxable income in the future, or cumulative losses are no longer present and our future projections for growth or tax planning strategies are demonstrated.

In fiscal 2023 and 2022, net loss was $52.4 million and $63.9 million, respectively;

or $1.94 and $2.39 per fully diluted share, respectively.

Storage and Terminal Solutions

Revenue for the Storage and Terminal Solutions segment was $255.7 million in fiscal 2023 compared to $232.8 million in fiscal 2022, an increase of $22.9 million.

The increase in segment revenue is primarily a result of higher volumes of specialty vessel capital projects and tank repair and maintenance work.

The segment gross margin was 4.1% in fiscal 2023 compared to 0.1% in fiscal 2022.

The fiscal 2023 segment gross margin improved on good project execution, but was negatively impacted by the under recovery of construction overhead costs due to low revenue volumes.

repair and maintenance project, which had reduced segment gross profit by $6.3 million.

In addition, segment gross margin was negatively impacted by smaller competitively priced capital projects in fiscal 2022.

Utility and Power Infrastructure

Revenue for the Utility and Power Infrastructure segment was $169.5 million in fiscal 2023 compared to $220.1 million in fiscal 2022.

The decrease is primarily due to lower volumes of natural gas utility peak shaving work, partially offset by higher volumes of power delivery work.

The reduction of peak shaving work is due to the timing of commencement of new projects and the completion of previous awarded projects.

We expect peak shaving work to have a significant impact to segment revenue in the second half of fiscal 2024.

The segment gross margin was 6.3% in fiscal 2023 compared to a negative gross margin of (3.9%) in fiscal 2022.

The segment gross margin for fiscal year 2023 was negatively impacted by continued work on projects with previously reduced gross margins and projects that were bid competitively.

These negative impacts were partially offset by strong execution of cost reimbursable power delivery work.

The fiscal 2022 negative segment gross margin was materially impacted by changes in the forecasted costs to complete two large capital projects and an unfavorable settlement of a claim with a customer.

The segment gross margin in fiscal 2022 was also negatively impacted by the under recovery of construction overhead costs.

Process and Industrial Facilities

Revenue for the Process and Industrial Facilities segment was $369.8 million in fiscal 2023 compared to $254.8 million in fiscal 2022.

The increase of $115.0 million was primarily due to work on a capital project at a biodiesel facility, higher volumes of refinery maintenance and turnaround activity, midstream gas processing capital work, and work on a capital project at a mining facility.

The segment gross margin was 2.9% in fiscal 2023 compared to 3.6% in fiscal 2022.

Outside of work on midstream gas processing work, project execution was strong for the remainder of the segment.

The segment gross margin in fiscal 2023 was negatively impacted by unfavorable changes in the estimated recovery of change orders and increased forecasted costs to complete certain midstream gas processing capital work, which resulted in a $12.6 million reduction in gross profit for the fiscal year.

These charges were primarily the result of the client not approving adequate compensation to us for the impact that excessive scope changes had on our ability to progress the work according to forecast and for the impact of global supply chain issues and inflation.

We have accrued the full expected loss for the work, which are now mechanically complete.

Finally, segment gross margin was also negatively impacted by the under recovery construction overhead costs.

Despite generally strong project execution and higher volumes, the segment gross margin in fiscal 2022 was negatively impacted by an increase in forecasted costs to complete a midstream gas processing project.

The project had reduced gross profit by $8.7 million during fiscal 2022.

The increase in forecasted costs was primarily due to performance of a now terminated subcontractor, which required rework, as well as supply chain and escalation issues, in order to meet our client's expectations.

Segment gross margin was also negatively impacted by under recovered construction overhead costs in fiscal 2022.

Unallocated corporate expenses were $28.5 million during fiscal 2023 compared to $30.3 million in the same period last year.

Non-GAAP Financial Measures

In order to more clearly depict our core profitability, the following tables present our operating results after certain adjustments:

Reconciliation of Net Loss to Adjusted Net Income (Loss) (1)

Reconciliation of Net Loss to Adjusted Net Loss (1)

(In thousands, except per share data)

4 unchanged sentences

Goodwill and intangible asset impairments 12,316 18,312 —

Gain on sale of facilities ( 2 )

Gain on sale of assets (2)

(2,905) (32,392) —

Accelerated amortization of deferred debt amendment fees (3)

Deferred tax valuation allowance (4)

Tax impact of adjustments and other net tax items (4)

Adjusted net income (loss) $ (53,409) $ (26,207) $ 10,807

(3,231) 4,464 (1,739)

Deferred tax valuation allowance (5)

12,595 17,943 —

Adjusted net loss $ (30,444) $ (53,409) $ (26,207)

Loss per fully diluted share, as reported $ ( 1.94 ) $ ( 2.39 ) $ ( 1.18 )

Adjusted earnings (loss) per fully diluted share $ (1.13) $ (2.00) $ (0.99)

(1) This table presents non-GAAP financial measures of our adjusted net income (loss) and adjusted earnings (loss) per fully diluted share for fiscal 2022, 2021 and 2020.

(1) This table presents non-GAAP financial measures of our adjusted net loss and adjusted loss per fully diluted share for fiscal 2023, 2022 and 2021.

The most directly comparable financial measures are net loss and loss per fully diluted share, respectively, presented in the Consolidated Statements of Income.

We have presented these non-GAAP financial measures because we believe they more clearly depict our core operating results during the periods presented and provide a more comparable measure of our operating results to other companies considered to be in similar businesses.

Since adjusted net income (loss) and adjusted earnings (loss) per fully diluted share are not measures of performance calculated in accordance with GAAP, they should be considered in addition to, rather than as a substitute for, the most directly comparable GAAP financial measures.

(2) Gain on the sale-leaseback of our regional office and fabrication and warehouse facility located in Orange, California (see Part II.

Since adjusted net loss and adjusted loss per fully diluted share are not measures of performance calculated in accordance with GAAP, they should be considered in addition to, rather than as a substitute for, the most directly comparable GAAP financial measures.

(2) In fiscal 2023, we booked a $2.9 million gain on the sale of our industrial cleaning business in the fourth quarter of fiscal 2023.

Item 8, Financial Statements, Note 3 - Property, Plant and Equipment - Industrial Cleaning Disposal, for more information.

In fiscal 2022, we booked a $32.4 million gain on the sale-leaseback of our regional office and fabrication and warehouse facility located in Orange, California (see Part II.

Item 8-Financial Statements and Supplementary Data, Note 3 - Property, Plant and Equipment - Sale-leaseback Transaction, for more information.)

(3) Interest expense in fiscal 2022 included $1.5 million of accelerated amortization of deferred debt amendment fees (see Part II.

Item 8-Financial Statements and Supplementary Data, Note 5 - Debt, for more information).

(3) Interest expense in fiscal 2022 included $1.5 million of accelerated amortization of deferred debt amendment fees in connection with terminating the Senior Secured Revolving Credit facility.

(4) Calculated by applying a blended state and federal tax rate of approximately 26% to the adjustments, after giving consideration to the portion of impaired goodwill that was not tax deductible.

(5) See Part II, Item 8-Financial Statements and Supplementary Data, Note 6 - Income Taxes, for more information about the deferred tax asset valuation allowance.

Reconciliation of Net Loss to Adjusted EBITDA

We have presented Adjusted EBITDA, which we define as net loss before goodwill and other intangible asset impairments, restructuring costs, gain on sale of facilities, stock-based compensation, interest expense, income taxes, and depreciation and amortization, because it is used by the financial community as a method of measuring our performance and of evaluating the market value of companies considered to be in similar businesses.

We have presented Adjusted EBITDA, which we define as net loss before goodwill impairments, gain on sale of facilities, restructuring costs, stock-based compensation, interest expense, income taxes, and depreciation and amortization, because it is used by the financial community as a method of measuring our performance and of evaluating the market value of companies considered to be in similar businesses.

We believe that the line item on our Consolidated Statements of Income entitled “Net loss” is the most directly comparable GAAP measure to Adjusted EBITDA.

4 unchanged sentences

Our non-GAAP performance measure, Adjusted EBITDA, has certain material limitations as follows:

• It does not include impairments to goodwill and other intangible assets.

• It does not include impairments to goodwill.

While impairments to intangible assets are non-cash expenses in the period recognized, cash or other consideration was still transferred in exchange for the intangible assets in the period of the acquisition.

Any measure that excludes impairments to intangible assets has material limitations since these expenses represent the loss of an asset that was acquired in exchange for cash or other assets.

• It does not include gain on sale of facilities.

While the sale occurred outside the normal course of business and similar sales are not expected to be recurring or sustainable, any measure that excludes this gain has inherent limitations since the sale resulted in a material inflow of cash.

• It does not include gain on asset sales.

While these sales occurred outside the normal course of business and are not expected to be recurring, any measure that excludes this gain has inherent limitations since the sale resulted in a material inflow of cash.

• It does not include restructuring costs.

19 unchanged sentences

Goodwill and other intangible asset impairment 12,316 18,312 —

Gain on sale of facilities (1)

Gain on sale of assets (1)

(2,905) (32,392) —

Restructuring costs 3,142 646 6,756

4 unchanged sentences

Adjusted EBITDA $ (17,699) $ (45,635) $ (8,934)

(1) Gain on the sale-leaseback of our regional office and fabrication and warehouse facility located in Orange, California (see Part II.

(1) In fiscal 2023, we booked a $2.9 million gain on the sale of our industrial cleaning business in the fourth quarter of fiscal 2023.

Item 8, Financial Statements, Note 3 - Property, Plant and Equipment - Industrial Cleaning Disposal, for more information.

In fiscal 2022, we booked a $32.4 million gain on the sale-leaseback of our regional office and fabrication and warehouse facility located in Orange, California (see Part II.

Item 8-Financial Statements and Supplementary Data, Note 3 - Property, Plant and Equipment - Sale-leaseback Transaction, for more information.)

Fiscal 2022 Versus Fiscal 2021

Consolidated revenue was $707.8 million for fiscal 2022 compared to $673.4 million in fiscal 2021.

On a segment basis, revenue increased in the Process and Industrial Facilities and Utility and Power Infrastructure segments by $54.9 million and $10.1 million, respectively.

The increases were partially offset by a decrease in revenue of $30.6 million in the Storage and Terminal Solutions segment.

Consolidated gross profit (loss) was ($1.2) million in fiscal 2022 compared to $32.8 million in fiscal 2021.

Gross margin (loss) was (0.2)% in fiscal 2022 compared to 4.9% in fiscal 2021.

Gross margins in fiscal 2022 were negatively impacted by low revenue volume, which led to the under recovery of construction overhead costs.

In addition, the competitive bidding environment and increased forecasts in costs to complete projects negatively impacted gross margins.

Gross margins in fiscal 2021 were negatively impacted by lower than forecasted volume, which led to under recovery of construction overhead costs, lower than previously forecasted margins on large capital projects in the Utility and Power Infrastructure and Storage and Terminal Solutions segments, and an unfavorable settlement on a contract dispute in the Storage and Terminal Solutions segment.

Consolidated SG&A expenses were $67.7 million in fiscal 2022 compared to $69.8 million in fiscal 2021.

The decrease in fiscal 2022 was primarily attributable to implemented cost reductions.

In the third quarter of fiscal 2022, we recorded $18.3 million of goodwill impairment.

Item 8, Financial Statements, Note 4 - Goodwill and Other Intangible Assets - Goodwill, for more information about the impairments.

As a result of actions taken to reduce our cost structure, we recorded $0.6 million of restructuring costs in fiscal 2022.

These costs were net of a $1.6 million credit recorded in restructuring costs in the third quarter.

The credit was due to a favorable settlement of a restructuring obligation related to our exit from the domestic iron and steel industry in fiscal 2020.

See "Operational Update" in this Results of Operations section and Part II.

Item 8, Financial Statements and Supplementary Data, Note 14 - Restructuring Costs, for more information.

Interest expense was $3.0 million in fiscal 2022 and $1.6 million in fiscal 2021.

Interest expense in fiscal 2022 included $1.5 million of accelerated amortization of deferred debt amendment fees in the first quarter (see Part II.

Item 8, Financial Statements, Note 5 - Debt, for more information.) The remaining interest expense in fiscal 2022 was comprised of letter of credit fees, unused capacity fees, interest on outstanding advances, and amortization of deferred debt issuance costs.

Other income included a $32.4 million gain on the sale-leaseback of our regional office and fabrication and warehouse facility located in Orange, California during the fourth quarter of fiscal 2022.

Item 8, Financial Statements, Note 3 - Property, Plant and Equipment - Sale-leaseback Transaction, for more information.

Our effective tax rate for fiscal 2022 was (9.6)% compared to 27.8% in fiscal 2021.

The effective tax rate during fiscal 2022 was primarily impacted by a $17.9 million valuation allowance placed on our deferred tax assets.

Item 8, Financial Statements, Note 6 - Income Taxes, for more information about the valuation allowance.

The effective tax rate during fiscal 2021 was positively impacted by a provision of the CARES Act that allowed us to carryback $5.2 million of the fiscal 2021 net operating loss to a period with a higher statutory federal income tax rate.

The carryback benefit was offset by $2.8 million of valuation allowances on various deferred tax assets and $1.8 million of excess tax expense related to the vesting of stock-based compensation.

In fiscal 2022 and 2021, net loss was $63.9 million and $31.2 million, respectively;

or $2.39 and $1.18 per fully diluted share, respectively.

Utility and Power Infrastructure

Revenue for the Utility and Power Infrastructure segment was $220.1 million in fiscal 2022 compared to $210.1 million in fiscal 2021.

The increase is primarily due to higher volumes of power generation and power delivery work, partially offset by lower volumes of natural gas utility peak shaving and storm response service work.

The segment gross margin (loss) was (3.9)% in fiscal 2022 compared to 0.7% in fiscal 2021.

Fiscal 2022 segment gross margin was materially impacted by changes in the forecasted costs to complete two large capital projects.

Improved execution on the first project resulted in an increase in gross profit of $2.2 million during the second half of fiscal 2022.

However, increases in the forecasted costs to complete this project during the first half of fiscal 2022 resulted in the project reducing gross profit by $3.6 million during the year.

The increase in forecasted costs during the first half of the fiscal year was principally due to unexpected equipment repairs during commissioning that delayed the scheduled completion and increased the estimated costs to complete.

We achieved a critical performance milestone during the second quarter of fiscal 2022, which significantly reduced our financial exposure on the project.

Increased forecasted costs to the complete the second project resulted in the project reducing gross profit by $2.2 million during the fourth quarter of fiscal 2022 and $0.1 million during fiscal 2022.

We recognized $78.1 million of revenue on this project during the year at a near break-even margin as a result of the change in estimate.

The increase in forecasted costs was the result of higher than anticipated subcontractor costs and labor costs as the project neared completion.

We expect to complete the project during the second quarter of fiscal 2023.

The segment gross margin in fiscal 2022 was also negatively impacted by low revenue volume, which led to the under recovery of construction overhead costs, and by an unfavorable settlement of a claim with a customer in the first quarter of fiscal 2022.

Results of operations in fiscal 2021 were materially impacted by increases in the forecasted costs to complete a large capital project.

This project reduced gross profit by $5.8 million in fiscal 2021.

The changes in estimate were due to lower than previously forecasted productivity caused by excessive rain at the project site, the impact of COVID-19, and rework which led to higher costs and schedule compression.

In addition, segment gross margin was negatively impacted by low volume, which led to the under recovery of construction overhead costs.

These negative impacts were partially offset by good project execution in the remainder of the segment.

Process and Industrial Facilities

Revenue for the Process and Industrial Facilities segment was $254.8 million in fiscal 2022 compared to $199.9 million in fiscal 2021.

The increase of $54.9 million is primarily due to higher levels of refinery maintenance and turnaround work.

The segment gross margin was 3.6% in fiscal 2022 compared to 8.8% in fiscal 2021.

The project reduced gross profit by $8.7 million during fiscal 2022.

The increase in forecasted costs was primarily due to poor performance of a now terminated subcontractor, which required rework, as well as supply chain and escalation issues, in order to meet our client's expectations.

Segment gross margin was also negatively impacted by under recovered construction overhead costs in fiscal 2022.

Segment gross margin in fiscal 2021 was positively impacted by strong project execution and the positive impact of a one-time workers' compensation item recorded in the second quarter, but these positive impacts were partially offset by lower revenue volume, which led to the under recovery of construction overhead costs.

Storage and Terminal Solutions

Revenue for the Storage and Terminal Solutions segment was $232.8 million in fiscal 2022 compared to $263.4 million in fiscal 2021, a decrease of $30.6 million.

The decrease in segment revenue is primarily a result of lower volumes of crude oil tank and terminal capital work.

The segment gross margin was 0.1% in fiscal 2022 compared to 5.2% in fiscal 2021.

The fiscal 2022 segment gross margin was negatively impacted by low revenue volume, which led to under recovery of construction overhead costs and a lower than previously forecasted margin on a thermal energy storage tank repair and maintenance project due to changes in repair scope, expanded client weld testing and associated schedule delays, which reduced segment gross profit by $6.3 million.

In addition, segment gross margin was negatively impacted by smaller competitively priced capital projects.

The fiscal 2021 segment gross margin was negatively impacted by increases in the costs to complete a large crude oil terminal project, partially offset by an increase in the estimated recovery of those costs.

During the third quarter, we achieved mechanical completion on the project, demobilized and completed our assessment of unpriced change orders.

The project's financial impact for fiscal 2021 was a $3.8 million reduction to gross profit.

In addition, a settlement on a contract dispute over the construction of a crude oil terminal negatively impacted gross profit by $2.9 million in the fourth quarter.

The settlement resulted in a cash receipt of $8.9 million in the first quarter of fiscal 2022, which enabled us to avoid future legal costs and litigation risk.

Fiscal 2021 gross margin was also negatively impacted by low volume, which led to the under recovery of construction overhead costs.

Unallocated corporate expenses were $30.3 million during fiscal 2022 compared to $26.7 million in the same period last year.

The increase is primarily attributable to an increase in legal costs for outstanding litigation (see Item 8.

Financial Statements, Note 7 - Commitment and Contingencies, for more information), third party consulting services and centralization of support costs related to restructuring activities (see "Operational Update" in this Results of Operations section), partially offset by cost reductions we implemented.

LIQUIDITY AND CAPITAL RESOURCES

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Liquidity at June 30, 2022 $ 94,831

Cash used by operating activities (54,196)

Cash provided by operating activities 10,247

Capital expenditures (9,009)

Proceeds from asset sales (1)

Net borrowings under ABL Facility 15,000

Remaining availability under ABL Facility 42,460

Cash restricted in support of ABL Facility (25,000)

Net repayments under ABL Facility (5,000)

Decrease in availability under ABL Facility (4,718)

Cash used by other financing activities (58)

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Liquidity at June 30, 2023 $ 92,554

(1) Includes $37.4 million of proceeds from the sale-leaseback of our regional office and fabrication and warehouse facility located in Orange, California during the fourth quarter of fiscal 2022.

Item 8, Financial Statements, Note 3 - Property, Plant and Equipment - Sale-leaseback Transaction, for more information.

(1) Includes $6.3 million of net proceeds from the sale of our industrial cleaning business during the fourth quarter of fiscal 2023.

Item 8, Financial Statements, Note 3 - Property, Plant and Equipment - Industrial Cleaning Disposal, for more information.

The remaining asset sales comprised of equipment sold in the normal course of business.

There continues to be significant uncertainty regarding the near- and intermediate-term business impacts from supply chain disruptions, inflation, and the dislocation of certain energy and industrial markets following the onset of the COVID-19 Pandemic and the war between Ukraine and Russia.

During fiscal 2022, low revenue volume, a competitive bidding environment, and increased forecasted costs to complete certain projects led to a $54.2 million use of cash by operating activities, which negatively impacted our liquidity position.

However, we improved our liquidity position by entering into a sale-leaseback transaction during the fourth quarter of fiscal 2022, which resulted in $37.4 million in proceeds (see Part II.

Item 8-Financial Statements and Supplementary Data, Note 3 - Property, Plant and Equipment - Sale-leaseback Transaction, for more information.) In addition, we added $32.5 million of liquidity as a result of entering into the ABL Facility during the first quarter of fiscal 2022.

We continue to maintain adequate liquidity to support our near- to intermediate-term needs.

We are taking the following actions:

• strategic review of business processes and organizational structure;

• proactive management of the cost structure and working capital;

• eliminating all non-critical capital expenditures.

Factors that routinely impact our short-term liquidity and may impact our long-term liquidity include, but are not limited to:

• changes in costs and estimated earnings in excess of billings on uncompleted contracts and billings on uncompleted contracts in excess of costs due to contract terms that determine the timing of billings to customers and the collection of those billings:

◦ some cost plus and fixed price customer contracts are billed based on milestones which may require us to incur significant expenditures prior to collections from our customers;

◦ some cost plus and fixed price customer contracts are billed based on milestones which may require us to incur significant expenditures temporarily prior to collections from our customers;

◦ some fixed price customer contracts allow for significant upfront billings at the beginning of a project, which temporarily increases liquidity near term;

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◦ some of our large construction projects may require security in the form of letters of credit or significant retentions.

The timing of collection of retentions is often uncertain;

• other changes in working capital;

Retentions are normally held until certain contractual milestones are achieved;

• other changes in working capital, including the timing of tax payments and refunds;

• capital expenditures.

Other factors that may impact both short and long-term liquidity include:

• contract disputes, which can be significant;

• contract disputes;

• collection issues, including those caused by weak commodity prices, economic slowdowns or other factors which can lead to credit deterioration of our customers;

• issuances of letters of credit;

• strategic investments in new operations.

Other factors that may impact long-term liquidity include:

• borrowing constraints under our credit facility and maintaining compliance with all covenants contained in the Credit Agreement;

• acquisitions and disposals of businesses;

• borrowing constraints under our ABL Facility and maintaining compliance with all covenants contained in the ABL Facility;

• acquisitions and disposals of businesses or assets;

• purchases of shares under our stock buyback program.

Cash Flows Used by Operating Activities

Cash flows used by operating activities for the fiscal year ended June 30, 2022 totaled $54.2 million.

Major components of cash flows used by operating activities for the year ended June 30, 2022 are as follows:

Net Cash Used by Operating Activities

ABL Credit Facility

On September 9, 2021, the Company and our primary U.S.

and Canada operating subsidiaries entered into an asset-based credit agreement, which was amended on October 5, 2022 (as amended, the "ABL Facility"), with Bank of Montreal, as Administrative Agent, Swing Line Lender and a Letter of Credit Issuer, and the lenders named therein.

The maximum amount of loans under the ABL Facility is limited to $90.0 million.

The ABL Facility's available borrowings may be increased by an amount not to exceed $15.0 million, subject to certain conditions, including obtaining additional commitments.

The ABL Facility is intended to be used for working capital, capital expenditures, issuances of letters of credit and other lawful purposes.

Our obligations under the ABL Facility are guaranteed by substantially all of our U.S.

and Canadian subsidiaries and are secured by a first lien on all our assets and the assets of our co-borrowers and guarantors under the ABL Facility.

The maximum amount that we may borrow under the ABL Facility is subject to a borrowing base, which is based on restricted cash plus a percentage of the value of certain accounts receivable, inventory and equipment, reduced for certain reserves.

We are required to maintain a minimum of $25.0 million of restricted cash at all times, but such amounts are also included in the borrowing base.

The ABL Facility matures, and any outstanding amounts become due and payable, on September 9, 2026.

At June 30, 2023, our borrowing base was $67.0 million, we had $10.0 million of outstanding borrowings, and we had $19.3 million in letters of credit outstanding, which resulted in availability of $37.7 million under the ABL Facility.

Our borrowing base has ranged from $67.0 million to $83.2 million during fiscal 2023.

Borrowings under the ABL Facility bear interest through maturity at a variable rate based upon, at our option, an annual rate of either a base rate (“Base Rate”), an Adjusted Term Secured Overnight Financing Rate ("Adjusted Term SOFR"), or at the Canadian Prime Rate, plus an applicable margin.

The Adjusted Term SOFR is defined as (i) the SOFR plus (ii) 11.448 basis points for a one-month tenor and 26.161 basis points for a three-month tenor;

provided that the Adjusted Term SOFR cannot be below zero.

The Base Rate is defined as a fluctuating interest rate equal to the greater of:

(i) rate of interest announced by Bank of Montreal from time to time as its prime rate;

(ii) the U.S.

federal funds rate plus 0.50%;

(iii) Adjusted Term SOFR for one month period plus 1.00%;

or (iv) 1.00%.

Depending on the amount of average availability, the applicable margin is between 1.00% to 1.50% for Base Rate and Canadian Prime Rate borrowings, which includes either U.S.

or Canadian prime rate, and between 2.00% and 2.50% for Adjusted Term SOFR borrowings.

Interest is payable either (i) monthly for Base Rate or Canadian Prime Rate borrowings or (ii) the last day of the interest period for Adjusted Term SOFR borrowings, as set forth in the ABL Facility.

The fee for undrawn amounts is 0.25% per annum and is due quarterly.

The interest rate in effect for borrowings outstanding at June 30, 2023, including applicable margin, was approximately 7.47%.

The ABL Facility contains customary conditions to borrowings, events of default and covenants, including, but not limited to, covenants that restrict our ability to sell assets, engage in mergers and acquisitions, incur, assume or permit to exist additional indebtedness and guarantees, create or permit to exist liens, pay cash dividends, issue equity instruments, make distribution or redeem or repurchase capital stock.

In the event that our availability is less than the greater of (i) $15.0 million and (ii) 15.00% of the commitments under the ABL Facility then in effect, a consolidated Fixed Charge Coverage Ratio of at least 1.00 to 1.00 must be maintained.

We were in compliance with all covenants of the ABL Facility as of June 30, 2023.

Cash Flows Provided by Operating Activities

Cash flows provided by operating activities for the fiscal year ended June 30, 2023 totaled $10.2 million.

Major components of cash flows provided by operating activities for the year ended June 30, 2023 are as follows:

Net Cash Provided by Operating Activities

(In thousands)

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Stock-based compensation expense 6,791

Deferred income tax 5,358

Other non-cash expenses 147

Cash effect of changes in operating assets and liabilities 32,501

Net cash used by operating activities $ (54,196)

(1) Gain on sale of property, plant and equipment includes a $32.4 million gain on the sale-leaseback of our regional office and fabrication and warehouse facility located in Orange, California (see Part II.

Item 8-Financial Statements and Supplementary Data, Note 3 - Property, Plant and Equipment - Sale-leaseback Transaction, for more information.) The remaining gain on the sale of property, plant and equipment comprised of equipment sold in the normal course of business.

Net cash provided by operating activities $ 10,247

(1) Gain on sale of property, plant and equipment includes a $2.9 million gain on the sale of our industrial cleaning business (see Part II.

Item 8-Financial Statements and Supplementary Data, Note 3 - Property, Plant and Equipment - Industrial Cleaning Disposal, for more information.) The remaining loss on the sale of property, plant and equipment comprised of equipment sold in the normal course of business.

Cash effect of changes in operating assets and liabilities at June 30, 2023 in comparison to June 30, 2022 include the following:

• Accounts receivable, excluding credit losses recognized during the period, increased $6.6 million during fiscal 2022, which decreased cash flows from operating activities.

The variance is primarily attributable to higher business volume and the timing of billing and collections.

• Accounts receivable, excluding credit losses recognized during the period, decreased $8.7 million during fiscal 2023, which increased cash flows from operating activities.

The variance is primarily attributable to the timing of billing and collections.

• Costs and estimated earnings in excess of billings on uncompleted contracts ("CIE") increased $0.1 million, which decreased cash flows from operating activities.

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CIE and BIE balances can experience significant fluctuations based on business volume and the timing of when job costs are incurred and the timing of customer billings and payments.

• Inventories, income taxes receivable, other current assets, operating right-of-use lease assets and other non-current assets increased $1.1 million during fiscal 2022, which decreased cash flows from operating activities.

• Inventories, income taxes receivable, prepaid expenses, other current assets, operating right-of-use lease assets and other non-current assets decreased $13.7 million during fiscal 2023, which increased cash flows from operating activities.

Most of this decrease was due to the receipt of $13.3 million of income tax refunds during the fiscal year.

These operating assets can fluctuate based on the timing of inventory builds and draw-downs, accrual and receipt of income taxes receivable, prepayments of certain expenses, leasing activity, business volume, and other timing differences.

• Accounts payable, accrued wages and benefits, accrued insurance, operating lease liabilities and other accrued expenses increased by $12.2 million during fiscal 2022, which increased cash flows from operating activities.

• Accounts payable, accrued wages and benefits, accrued insurance, operating lease liabilities and other accrued expenses, and other liabilities, non-current decreased by $9.4 million during fiscal 2023, which decreased cash flows from operating activities.

These operating liabilities can fluctuate based on the timing of vendor payments, accruals, leasing activities, business volume, and other timing differences.

• Other liabilities decreased by $7.4 million, which decreased cash flows from operating activities.

This decrease was primarily due to payment on the deferred payroll tax liability associated with the CARES Act.

See Part II., Item 8.

Financial Statements and Supplementary Data, Note 6 - Income Taxes for more information.

Cash Flows Provided by Investing Activities

Cash Flows Used by Investing Activities

Investing activities used $2.5 million of cash in the fiscal year ended June 30, 2023 primarily due to capital expenditures of $9.0 million, partially offset by $6.5 million of proceeds from the sale of assets.

The capital expenditures were comprised of $4.4 million for construction and transportation equipment, $2.3 million for office equipment, and $2.3 million for buildings and leasehold improvements.

The sale of assets included $6.3 million of net proceeds from the sale of our industrial cleaning business (see Part II.

Item 8 - Financial Statements and Supplementary Data, Note 3 - Property, Plant and Equipment - Industrial Cleaning Disposal, for more information).

Investing activities provided $35.7 million of cash in the fiscal year ended June 30, 2022 primarily due to $39.0 million of asset sales, including $37.4 million in proceeds from the sale-leaseback of our regional office and fabrication and warehouse facilities located in Orange, California during the fourth quarter of fiscal 2022 (see Part II.

Item 8, Financial Statements, Note 3 - Property, Plant and Equipment - Sale-leaseback Transaction, for more information.) The asset sale proceeds were partially

offset by $3.3 million of capital expenditures.

Item 8, Financial Statements, Note 3 - Property, Plant and Equipment - Sale-leaseback Transaction, for more information.) The asset sale proceeds were partially offset by $3.3 million of capital expenditures.

Capital expenditures consisted of $1.5 million for facilities, office equipment and software, and $1.8 million for construction, fabrication, and transportation equipment.

Cash Flows Provided by Financing Activities

Cash Flows Used by Financing Activities

Financing activities used $5.1 million of cash in the fiscal year ended June 30, 2023 primarily due to net repayments of $5.0 million on the ABL Facility.

Financing activities provided $12.7 million of cash in the fiscal year ended June 30, 2022 primarily due to the net borrowings of $15.0 million under our ABL Facility, partially offset by $1.3 million paid in fees to enter into the ABL Facility, and $0.9 million paid to repurchase our stock for payment of withholding taxes due on equity-based compensation.

ABL Credit Facility

On October 5, 2022, we and our primary U.S.

and Canada operating subsidiaries entered into the First Amendment and Waiver to Credit Agreement (the “Amendment”), which amended our asset-backed credit agreement (the "ABL Facility"), dated as of September 9, 2021 with Bank of Montreal, as Administrative Agent, Swing Line Lender and a Letter of Credit Issuer, and the lenders named therein.

The Amendment (i) waives an event of default resulting from our failure to deliver the Administrative Agent and the lenders our audited financial statements for the fiscal year ended June 30, 2022 by September 28, 2022 (the “Audited Financial Statements”), provided we deliver the Audited Financial Statements by October 14, 2022, (ii) reduces the maximum amount of loans under the ABL Facility to $90.0 million from $100.0 million and (iii) replaces the London interbank offered rate with the forward term rate based on the secured overnight financing rate (the “SOFR”) as the interest rate benchmark.

The ABL Facility is guaranteed by substantially all of our remaining U.S.

and Canadian subsidiaries.

The ABL Facility available borrowings may be increased by an amount not to exceed $15.0 million, subject to certain conditions, including obtaining additional commitments.

The ABL Facility is intended to be used for working capital, capital expenditures, issuances of letters of credit and other lawful purposes.

Our obligations under the ABL Facility are secured by a first lien on all our assets and the assets of our co-borrowers and guarantors under the ABL Facility.

We are required to maintain a minimum of $25.0 million of restricted cash at all times, but such amounts are also included in the borrowing base.

The ABL Facility matures and any outstanding amounts become due and payable on September 9, 2026.

At June 30, 2022, our borrowing base was $80.8 million, we had $15.0 million of outstanding borrowings, and $23.3 million in letters of credit outstanding, which resulted in availability of $42.5 million under the ABL Facility.

Borrowings under the ABL Facility bear interest through maturity at a variable rate based upon, at our option, an annual rate of either a base rate (“Base Rate”), an Adjusted Term SOFR ("Adjusted Term SOFR"), or at the Canadian Prime Rate, plus an applicable margin.

The Adjusted Term SOFR is defined as (i) the SOFR plus (ii) 11.448 basis points for a one-month tenor and 26.161 basis points for a three-month tenor;

provided that the Adjusted Term SOFR cannot be below zero.

The Base Rate is defined as a fluctuating interest rate equal to the greater of:

(i) rate of interest announced by Bank of Montreal from time to time as its prime rate;

(ii) the U.S.

federal funds rate plus 0.50%;

(iii) Adjusted Term SOFR for one month period plus 1.00%;

or (iv) 1.00%.

Depending on the amount of average availability, the applicable margin is between 1.00% to 1.50% for Base Rate and Canadian Prime Rate borrowings, which includes either U.S.

or Canadian prime rate, and between 2.00% and 2.50% for Adjusted Term SOFR borrowings.

Interest is payable either (i) monthly for Base Rate or Canadian Prime Rate borrowings or (ii) the last day of the interest period for Adjusted Term SOFR borrowings, as set forth in the ABL Facility.

The fee for undrawn amounts is 0.25% per annum and is due quarterly.

The interest rate in effect for borrowings outstanding at June 30, 2022, including applicable margin, was 6.00%.

In the event that our availability is less than the greater of (i) $15.0 million and (ii) 15.00% of the lesser of (1) the current borrowing base and (2) the commitments under the ABL Facility then in effect, a consolidated Fixed Charge Coverage Ratio of at least 1.00 to 1.00 must be maintained.

We are in compliance with all covenants of the ABL Facility as of June 30, 2022.

Senior Secured Revolving Credit Facility

The ABL Facility replaced the Fifth Amended and Restated Credit Agreement (the "Prior Credit Agreement"), that was entered into on November 2, 2020, and subsequently amended on May 4, 2021, by and among us and certain foreign subsidiaries, as Borrowers, various subsidiaries of ours, as Guarantors, JPMorgan Chase Bank, N.A., as Administrative Agent, Sole Lead Arranger and Sole Book Runner, and the other Lenders party thereto.

The Prior Credit Agreement provided for a three-year

senior secured revolving credit facility of $200.0 million that expired November 2, 2023.

We had no borrowings and $41.3 million of letters of credit outstanding under the Prior Credit Agreement as of the date we commenced the ABL Facility.

Interest expense during the fiscal 2022 included $1.5 million of accelerated amortization of deferred debt amendment fees associated with the Prior Credit Agreement.

Dividend Policy

We have never paid cash dividends on our common stock and the terms of our ABL Facility limit dividends to stock dividends only.

We have never paid cash dividends on our common stock and the terms of our Credit Agreement prohibit us from paying cash dividends.

Any future dividend payments will depend on the terms of our ABL Facility, our financial condition, capital requirements and earnings as well as other relevant factors.

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The program will continue unless and until it is modified or revoked by the Board of Directors.

We made no repurchases under the program in fiscal 2022 and have no current plans to repurchase stock.

We made no repurchases under the program during fiscal 2023 and have no current plans to repurchase stock.

As of June 30, 2023, there were 1,349,037 shares available for repurchase under the Stock Buyback Program.

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As of June 30, 2023, the amount outstanding under our ABL Facility was $10.0 million.

Based on the outstanding balance and interest rates applicable as of June 30, 2022, if we carried the borrowings to the maturity of the facility, we would make total interest payments on the outstanding debt of $6.8 million, with $1.6 million payable within the next 12 months.

Based on the outstanding balance and interest rates applicable as of June 30, 2023, if we carried the borrowings to the maturity of the facility, we would make total payments of interest and fees on the outstanding debt of $4.4 million, with $1.4 million payable within the next 12 months.

The outstanding borrowings are due on September 9, 2026 when the ABL Facility matures.

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Item 8, Financial Statements, Note 5 - Debt, for more information about the terms of our ABL Facility.

• Deferred Payroll Taxes :

We have deferred $5.6 million of U.S.

payroll tax as of June 30, 2022 through provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

We must repay these deferred payroll taxes by December 31, 2022.

Refer to Part II.

Item 8, Financial Statements, Note 6 - Income Taxes, for more information about the deferred payroll taxes.

Off-Balance Sheet Arrangements and Other Commitments

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As of June 30, 2023, there were $127.6 million of surety bonds in force, of which we expect $126.6 million to expire within the next 12 months.

Of the bonds in force, $99.6 million related to performance bonds for ongoing projects and the remainder related to contractor licensing, liens, and other bonds.

We are not aware of any losses in connection with surety bonds that have been posted on our behalf, and we do not expect to incur significant losses in the foreseeable future.

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Determine Contract Price paragraph above.

Unpriced change orders are more fully discussed in Note 7 - Commitments and Contingencies of the Notes to Financial Statements.

Unpriced change orders are more fully discussed in Note 2 - Revenue of the Notes to Financial Statements.

Sometimes we seek claims for amounts in excess of the contract price for delays, errors in specifications and designs, contract terminations, change orders in dispute or other causes of additional costs incurred by us.

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Determine Contract Price paragraph above.

Claims are more fully discussed in Note 7 - Commitments and Contingencies of the Notes to Financial Statements.

Claims are more fully discussed in Part II.

Item 8-Financial Statements and Supplementary Data, Note 2 - Revenue.

Costs and estimated earnings in excess of billings on uncompleted contracts included revenue for unpriced change orders and claims of $9.7 million at June 30, 2023 and $8.9 million at June 30, 2022.

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We performed our annual goodwill impairment test as of May 31, 2023, which resulted in no impairment.

The fiscal 2022 test indicated that four reporting units with a combined total of $33.8 million of goodwill as of June 30, 2022 were at higher risk of future impairment.

The fiscal 2023 test indicated that three reporting units with a combined total of $20.9 million of goodwill as of June 30, 2023 were at higher risk of future impairment.

If our view of project opportunities or gross margins deteriorates, particularly for the higher risk reporting units, then we may be required to record an impairment of goodwill.

Subsequent to the completion of the May 31, 2023 annual impairment test, additional information regarding new project awards became available which would significantly improve the cash flows and fair values of certain reporting units including reporting units 1 and 4 (see table below) that were considered at a higher risk of impairment.

We considered the amount of headroom for each reporting unit when determining whether an impairment existed.

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Reporting Unit 4 $ 4,238 28% 25% 15% 24%

Reporting Unit 5 $ 4,262 16% 9% -17% 6%

In the third quarter, we concluded that goodwill impairment indicators existed based on the decline in the price of our stock and operating results that have underperformed our forecasts during the year.

Accordingly, we performed an interim impairment test as of March 31, 2022 and concluded that there was $18.3 million of total impairment to goodwill, which was recorded as follows:

• $8.4 million in the Process and Industrial Facilities segment;

• $7.2 million in the Storage and Terminal Solutions segment;

• $2.7 million in the Utility and Power Infrastructure segment.

In the second quarter of fiscal 2023, we concluded that a goodwill impairment existed in the Process and Industrial Facilities segment based on a material adverse change in gross profit on a project.

Based on the indicated outcome of this project and our near-term outlook for the reporting unit, we performed an interim impairment test for the unit and concluded that its $12.3 million of goodwill was fully impaired.

The impairment was recognized in operating income during the three and six months ended December 31, 2022.

We use the asset and liability approach for financial accounting and reporting for income taxes.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis